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Chapter 20

3.3 Accounting treatment of associates in consolidated financial statements

 Associates should be accounted for using the equity method in the consolidated
financial statements.

 In the consolidated SOFP, this is a one-line entry within non-current assets as
‘the investment is initially recognised at cost and adjusted thereafter for
the post-acquisition change in the investor’s net assets’ (IAS 28, para 3).

 In the consolidated SP&L, eliminate any dividend received from the associate
and account for the group share of the associates profit after tax in arriving at
the consolidated profit before tax.

 The only other accounting adjustment required is to eliminate the group share
of any PURP arising on transactions between the parent and associate.

 As the parent does not control the associate, the following is not relevant:

– recognition of goodwill

– recognition of non-controlling interest

– cancellation of transactions and balances between parent and associate

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